Commercial property buyer’s agents are springing up all around Australia. Is it worth investing with one? Or are there better alternatives?
A commercial property buyer’s agent can help even the busiest investor get into commercial real estate investment. Because after diaper changes, back-to-back boardroom meetings, or even a slow 18 holes at the local golf course, there can be little time left for an investor to perform the intense due diligence needed to find a quality office, retail or industrial property.
But are buyer’s agents everything they’re stacked up to be? And are there alternatives out there for the time-poor investor?
Commercial property buyer’s agents might make investing in commercial property simpler. But as with every investment, it’s crucial you consider both the pros and cons. So, here are both the benefits and shortfalls of partnering with a buyer’s agent to find your next (or your first) property investment.
The pros of commercial property buyer’s agents
1. Gets you into the market
“I’d love to buy a commercial property… I just don’t have the time.” Yep, if we had a dollar…
There are now tonnes of ways investors can get into the commercial property market with little fuss. Buyer’s agents are just one of those ways.
Buyer’s agents bring many time- and knowledge-poor investors into the market. And as ambassadors for commercial property investment – having assisted thousands of Australian investors via unlisted property trusts, we are all for this. The more Australians finding their way into our transparent, robust and secure commercial real estate market, the better.
2. Complexities are simplified
Commercial real estate carries the stigma of being complicated. Too complicated by many investors’ standards, in which case they go running back to residential real estate or shares for an easier way to try grow their wealth.
A buyer’s agent can help navigate these complexities at the start of the commercial property investment process. The following several years, however, will be up to you.
3. Negotiations are made on your behalf
Stepping into the ring with an experienced property vendor can be a brutal way to start your journey in the commercial property game. Buyer’s agents handle these negotiations for you.
Unfortunately, this isn’t where the negotiations end in commercial property. You’ll have both leasing and sale negotiations to complete, too.
The cons of commercial property buyer’s agents
Using a commercial property buyer’s agent means a lump of your investment capital goes to them before you’ve seen a dime in rental income.
This is expected and completely understandable. But what this fee for service doesn’t account for is the performance of the property.
You can only recoup this fee if your commercial asset provides a strong enough yield. And if the buyer’s agent’s fee isn’t aligned to the performance of the property (like it is with some unlisted property trusts), then you might be kissing that money goodbye.
Worse still, some commercial property buyer’s agents have been known to take fees from both the buyer and the seller. This is rare, but in such an instance you’d be paying for the services of a buyer’s agent who also has the seller’s interests firmly in mind.
2. You still need to manage the property
Don’t think that the hard work is done with after you take ownership of the commercial asset. This is where the hard work begins.
Managing a commercial property comes with as many complexities and potential pitfalls as the due diligence phase, and the time and energy required to ensure the smooth operation of your asset is why so many investors stick to residential real estate or stocks.
That’s why unlisted property trusts are so popular for investors wanting a set and forget investment. The heavy lifting is done for you, from start to finish.
3. Difficult to determine their track record
You can view the volume of properties they’ve purchased for you; the price, the potential yield, the location. But how do you know the ongoing performance of each property they’ve led their past clients to?
4. They won’t help you divest the asset
Arguably, one of the most important times for realising the true performance of your commercial real estate investment is when you sell it. And divesting a commercial property is something buyer’s agents won’t help you with.
In fact, their very existence makes this part of your commercial property investment experience harder. Because there is always potential there will be a buyer’s agent on the other side of the divestment, trying to drive your sale price down on behalf of the buyer.
What’s an alternative to using a commercial property buyer’s agent?
An obvious substitute for a buyer’s agent is searching for a commercial property investment by yourself. But you’re still going to be dealing with a range of challenges, from researching to performing due diligence to negotiating with agents to managing the property to divesting it.
Another, smarter, alternative is investing alongside an unlisted property trust.
Also known as commercial property syndicates, property trusts are run by real estate experts who pool the money of multiple similar-minded investors, going after big league property investments on your behalf.
But their services don’t stop there.
The property syndicate managers (providing they offer this service – and they should) will manage the property for you in-house. Every tenant, every lease agreement, every rent collection, every repair and maintenance item are all taken care of for you. And a regular income distribution is sent straight to your back account (in the case of Properties & Pathways investments, you’ll receive a distribution every month).
And finally, when the investment holding period is over and the time comes to sell your asset (and indeed it is your asset – you own a portion of it), they handle the intense sale negotiations for you.
We offer unlisted property trusts in Australia. And with the strongest investor reinvestment rate that we know of, we think you’ll be pleased with the services we provide.
We don’t condemn commercial property buyer’s agents. They help novice and time-poor investors get into the property market. We just think there are superior alternatives for Australian investors. Unlisted property trusts are one of them.
Want more info on unlisted property trusts? Book a quick chat with our Director of Investor Relations, Guy Doggett.
Properties & Pathways is a dynamic Australian property investment company. Our completed syndicates have provided investors an average annualised return of 21.97%. For more information on how you can invest alongside us, get in touch today.